With the continuous development of personal credit business, the management of personal loan non-performing assets has become the focus of financial credit institutions. Recently the China Banking and Insurance Regulatory Commission issued the Notice on Pilot Work of Non-performing Loan Transfer, which required the implementation of pilot work of personal to public NPL transfer and personal NPL bulk transfer to advance the establishment of a unified non-performing asset transaction platform. This shows that in the continuous improvement of the market economy of the non-performing asset industry, the non-performing asset market dominated by personal loans is gradually personalized. What are personal loan non-performing assets? What are the causes of personal loan non-performing assets? What difficulties are there in the disposal of personal loan non-performing assets?
Development Status of Personal Loan Non-performing Assets
Recently the personal credit market is expanding. In response to the complex background of policy guidance and increasing endogenous business requirements, most traditional financial institutions have sunk their credit business to personal loans, while the remaining non-bank financial institutions and emerging Internet financial institutions have gradually expanded their business lines to personal financial services. The size of the personal credit market has been growing rapidly.
With the rapid development of personal credit business market, the pressure of personal loan non-performing asset management increases. Credit cards are a representative product of personal credit business. By the end of the third quarter of 2020, the total amount of overdue half-year credit of personal credit cards had reached RMB 90.663 billion, up 6.13% from the previous quarter.
For financial institutions that offer personal credit business earlier, the large accumulated amount of non-performing assets has significantly increased the management burden; for the late-comer financial institutions, In order to compete with the time-honored financial institutions for high-quality assets, their choice of customer groups with a low credit rating presents a severe situation of non-performing assetv management; for emerging Internet financial institutions offering personal credit business, a yet-to-be-developed risk management system has failed them to accurately identify the risk customers, which constitutes quite a challenge in subsequent disposal of personal loan non-performing assets.
Causes of Personal Loan Non-performing Assets
1.A Yet-to-be-developed Credit System
Although continuous progress has been made in the establishment of the domestic social credit system, the lack of a complete credit reporting system leads to the lack of credit records of social members, and the lack of a complete punishment system for credit losing leads to a low cost of credit losing. Under such a policy, the risk assessment data of the credit reporting system is incomplete, and the credit losing data cannot be registered and uploaded in time, thus financial institutions cannot systematically evaluate the customers before loan issuance. Moreover, frauds gradually turn online with the development of the Internet. When the total cost of credit losing is far lower than the profit, there are often people who take the initiative to lose credit in pursuit of high returns.
2.Intensive Industrial Competition
In response to the gradual homogenization of personal credit products launched by various financial institutions, certain financial institutions will lower the access threshold of customers in pursuit of short-term interests in order to seize more customer resources than the industry peers, and adopt a loose credit policy for customers. In the process of vicious competition in this industry, there will be problems such as poor customer qualifications and excessive credit granting. To seize customer resources, the Internet financial institutions rising in recent years serve the markets not penetrated by traditional financial institutions. Due to the inadequate control of market risks, they will be faced with the pressure of non-performing asset management in the short term.
3.An Insufficient Risk Management Talent Pool
Unprofessional risk management personnel will lead to mistakes in the decision-making of credit business, which will cause problems in the subsequent disposal of non-performing assets. For instance, the emerging P2P Internet financial model generally has the issues of low professional quality and weak risk awareness of credit decision makers. If the risk management personnel fail to keep pace with the development of the economy, they will not be able to promptly identify the risk points in the personal loan business, thus leading to the increase in the amount of non-performing assets.
Difficulties in the Disposal of Personal Loan Non-performing Assets
1.Slow Legal Proceedings
The main type of personal loan non-performing assets of banks are strong mortgage loans. Although the liquidation value of most loan collateral is greater than the principal and interest of the loan, it takes a long time for the court to file, litigate and execute this type of bad loan cases due to various factors such as the seizure of the collateral by relevant parties and the loss of contact of the borrower. For instance, it takes one to two years for many personal loan non-performing asset cases to complete the process from filing to hearing, while it takes about three years until the auction is finished. Non-performing assets are being resolved at a very slow pace.
2.A High Proportion of Customers Losing Contact
In the application for personal credit, customers usually only leave their personal mobile number, name and ID Card number. Some will apply for a new mobile number when their personal loan is overdue to deliberately avoid debt repayment. The non-performing asset management companies will be unable to obtain effective communication due to the change of customer contact information, thus failing to promote the subsequent process of non-performing asset disposal. Especially when the non-performing assets enter the litigation period, the customers will deliberately not work with the staff to avoid debt repayment and thus prolong the litigation time.
3.Lack of a Supervision Mechanism in Disposal
Most financial institutions fail to identify the priorities in the process of disposing off personal loan non-performing assets. They pay too much attention to the disposal process of personal loan non-performing assets, yet fail to systematically supervise the work quality of each disposal sub-step. The superficial supervision of the disposal process leads to the collusion, fraud, corruption and other malpractices between the staff and debtors. Lax supervision will not only hinder the disposal of personal loan non-performing assets, but also seriously erode the original value of the asset package seller.
The causes of personal loan non-performing assets are complex and variable, and with the continuous development of personal credit business, the problem of personal loan non-performing assets is increasingly serious, and there are many difficulties in the process of disposal. Only by improving the personal loan credit system, establishing comprehensive risk management measures, and strictly controlling the access threshold of customers can the personal loan non-performing assets be managed more effectively. Furthermore, continuous risk monitoring and subsequent customer maintenance management can also lay a solid foundation for the efficient disposal of personal loan non-performing assets in the future.